Realty Times September 28, 1999

Negligent Referrals: Should Realtors Recommend Service Providers?
by Blanche Evans

Liability is an ugly word, and it always looms in the background of any real estate transaction. But where does a real estate practitioner draw the line - by serving the customer or protecting his/her own skin?

Every buyer and seller sooner or later has a need for an outside service provider - an attorney, a home inspector, a mortgage broker, a mover, or others. Your job is to provide service, and providing the name of your favorite service providers should be a no-brainer - except for the issue of liability.

So, how can you give good service and protect yourself at the same time? You can put yourself squarely in the middle or you can distance yourself and still provide your clients with the contacts they need. The question is - how much distance do you want?

Here are a few options and the possible consequences:

1. You can choose to funnel business to service providers whom you know are reputable and include a written disclaimer in your written recommendations that you are not liable for any problems that may arise due to the client's choosing your service provider. Reduce liability by having your client sign a copy for your files. A little heavy handed, but it will do the trick.

2. You can offer a list of names to the client from which to choose, again disclaiming in writing any association with the service providers. A little more distant, but if you have worked with these people before you can say so. Support your suggestions with testimonials from previous clients who were happy with the inspector's or mover's work.

3. You can copy names out of the phone book by area and give the nearest ones to your client, again with a disclaimer. At this point, you risk the client's trust. If the client wants you to make a recommendation, you will have to go to 1 or 2.

4. You can point your client to the Internet by giving them the national or local association URLs of the most commonly used services such as the National Association of the Remodeling Industry(www.nari.com) the American Society of Home Inspectors (www.ashi.com) and the Mortgage Bankers Association of America(www.mbaa.org.) This is really the hands-off approach, best used only in the most extreme circumstances.

If all of these approaches seem heavy handed as well as far afield of the service ethic you promised your client, don't despair.

There are other ways to handle the situation.

  • Stand behind your recommendation. If you know and trust this service provider, be willing to say so. Outline your history and experiences with the company or individual and be willing to back up your recommendation with references from your other clients.

  • If you must find a service provider for your client, and you don't know anyone, don't settle on the first name you come across. Take steps to investigate who this person is. An arbitration case in Los Angeles was settled in the plaintiff's behalf against a large brokerage firm a few years ago when the agent testified that they "heard the inspector was good," instead of finding out for themselves.

  • Refer licensed contractors whenever possible, particularly those who belong to trade associations. Licensed service providers generally will have a longer, more stable track record, plus there is some assurance that they have experience or knowledge of their trade specialty. Membership in some associations are subject to background checks into the applicant's reputation.

  • Get a release if the customer chooses someone whom you don't know. Many times the client will choose a contractor through friends or family, or through listing agents or relocation companies. Let them be liable - take yourself out of the loop.

  • Only recommend that your clients hire contractors and service providers who are insured. "Licensed, bonded and insured" carries a lot of weight with most home buyers.

  • Only add service providers to your list who will provide you with references. Call the references and arrange to stop by their homes so that you can see the work for yourself. Then document what you saw.

    Taking steps to qualify the individuals you are recommending can go a long way to reducing the potential for litigation, and more importantly, will allow you to provide quality service you know you should to your clients.


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